IBM has now paid Globalfoundires $1.5B to take over all of its semiconductor manufacturing operations, which used to be known as IBM Microelectronics.
As a result Big Blue is now "Fabless", or lacking its own chip fabrication capability, like its enterprise competitors HP, Fujitsu and Oracle, that also sell big iron enterprise servers that run on UNIX, but have processors that are produced by others.
HP uses Intel for its Itanium-based Nonstop/Superdome systems, and Oracle uses TSMC to build its UltraSPARCs, which is GlobalFoundries's primary rival. Fujitsu partners with LSI Corp for its own SPARC-architecture chips.
GlobalFoundries is a California company that was formed after AMD divested its own chip manufacturing capacity and merged with Chartered Semiconductor Manufacturing. It is owned by the royal family of the Persian Gulf nation of Abu Dhabi, which is part of the United Arab Emirates (UAE).
Among chips that IBM produced as a semiconductor manufacturer for the embedded systems industry (such as the PowerPC that is the CPU in the XBOX 360, PS3 and Nintendo consoles, as well as in other industry applications) the East Fishkill, New York and Essex Junction, Vermont plants that GlobalFoundries is taking over produce the POWER architecture chips that go into IBM's System p UNIX/Linux boxes as well as their System z mainframes.
In addition to their PureSystems integrated appliances, these are the only computer systems IBM still manufactures since they sold off their Intel-based server line to Lenovo, as it did with their PC business in 2004.
As we know from Apple, which is also a "fabless" company, not having native chipmaking capability isn't necessarily a bad thing. But we know from history that brain drain and also losing fundamental expertise in chip design could be disastrous.
HP also was once a company that could fabricate its own chips, as did Digital Equipment corporation which it had acquired via the Compaq merger, which produced the Alpha supercomputing chip. After being purchased by Compaq, DEC killed off the Alpha, and sold the manufacturing capabilities to Samsung (which eventually, had the Alpha's bus technologies licensed to AMD and eventually, ended up at GlobalFoundries).
Later on HP decided to end its PA-RISC processor line, terminate its own production capabilities, and went into partnership with Intel on the Itanium.
And we all know how that one turned out.
If the System p and the System z is to continue to be IBM's crown jewels and best in breed big iron that enterprises have come to rely on, then IBM must stay actively involved in the engineering process of the silicon.
While GlobalFoundries has agreed to supply IBM with chips for 10 years and also provide employment for those engineers, there is always the risk of brain drain. GlobalFoundries may, at some point, decide that maintaining operations in the United States is not cost effective.
For that reason alone, IBM must maintain a core set of superior engineering talent for its POWER chips in-house or risk repeating HP's past mistakes.
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